The Sunday Times
Gazumping and gazundering have long been a buyer’s and seller’s worst nightmare (if they are the ones losing out). At the moment, sellers in England and Wales can change their mind late in the day if they get a higher offer — gazumping. And an offer can be withdrawn by the buyer at any time until contracts are exchanged, leading to gazundering — a purchaser demanding a last-minute price reduction.
Now, after decades of broken deals and backstabbing in the property market, these reviled practices could finally be consigned to history. In early 2020, the government will trial a possible solution: the reservation agreement.
This is a legally binding deal aimed at deterring buyers and sellers from reneging on agreements or pulling out at the last minute — a problem the government estimates leads to 30% of property transactions collapsing. These issues, along with unforeseen problems discovered during surveys, mean that it typically takes 20 weeks between first marketing a home for sale and the new owner moving in, according to the Ministry of Housing, Communities and Local Government (MHCLG).
Fall-throughs are expensive, too. Research conducted for the HomeOwners Alliance consumer group in 2018 found that 51% of sellers lost an average of £2,700 when a sale collapsed, with a further 12% claiming to be out of pocket by more than £5,000.
Phil Spencer, presenter of Location, Location, Location and founder of the buyers’ website Move IQ, is similarly concerned about these practices. “A legal system that allows buyers or sellers to abandon a sale a day before the exchange has always been a point of contention,” he says.
How will the reservation agreement work? According to the MHCLG, it’s likely to be a two-page document, drawn up in agreement with estate agents and conveyancing solicitors. It will be tested in England (gazumping is rare in Scotland, as regulations are tighter), starting in the first quarter of next year; the trial locations will be announced soon.
Buyers and sellers will pay a deposit of £500-£1,000, which will be lost if they pull out: exceptions will be made only for situations such as a family death or a job loss. The vendors may also have to provide more details about the property upfront — a log book of sorts, with data on disputes, boundaries, alterations and so on — to reduce the risk of buyers discovering problems at the 11th hour.
This all has echoes of the old home information packs, which, 12 years ago, were briefly introduced by the Labour government as a way of simplifying the purchase process. These were especially unpopular with estate agents, but now they seem persuaded.
“The principle is sound, in that buyer and seller both need ‘skin in the game’ when they have agreed a deal and the conveyancing is being processed,” says Trevor Abrahmsohn, founder of Glentree Estates, a high-end north London estate agency.
There may be difficulties: some conveyancers have expressed doubts about a watertight definition of what constitutes an exceptional reason for pulling out. Others ask at what exact point a sale is agreed — when a vendor accepts an offer or when contracts are exchanged?
Notwithstanding such grey areas, this trial is just one of a host of changes coming in the near future. Others include increased transparency about referral fees — buyers will be told how much an agent makes by recommending a particular mortgage firm, for example — and, in 2021, the expected introduction of minimum qualifications for sales and lettings agents.
All this assumes no change of mind on the part of politicians — and with nine housing ministers having come and gone in the past nine years, there’s no guarantee of that. But the minister who puts an end to gazumping and gazundering will earn a place in history, and in the hearts of beleaguered buyers and sellers.